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Did Hedge Funds Drop The Ball On The Hain Celestial Group, Inc. (HAIN) ?

Nina Todic

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like The Hain Celestial Group, Inc. (NASDAQ:HAIN).

Is The Hain Celestial Group, Inc. (NASDAQ:HAIN) worth your attention right now? The smart money is in a pessimistic mood. The number of bullish hedge fund bets went down by 2 recently. Our calculations also showed that hain isn't among the 30 most popular stocks among hedge funds. HAIN was in 21 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 23 hedge funds in our database with HAIN positions at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

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Let's take a look at the recent hedge fund action surrounding The Hain Celestial Group, Inc. (NASDAQ:HAIN).

How are hedge funds trading The Hain Celestial Group, Inc. (NASDAQ:HAIN)?

At Q4's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HAIN over the last 14 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

No of Hedge Funds with HAIN Positions

More specifically, Engaged Capital was the largest shareholder of The Hain Celestial Group, Inc. (NASDAQ:HAIN), with a stake worth $186.5 million reported as of the end of December. Trailing Engaged Capital was Greenhouse Funds, which amassed a stake valued at $17.2 million. Renaissance Technologies, Brahman Capital, and Proxima Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Since The Hain Celestial Group, Inc. (NASDAQ:HAIN) has witnessed declining sentiment from the smart money, it's safe to say that there is a sect of hedgies that slashed their positions entirely heading into Q3. Interestingly, Steven Boyd's Armistice Capital sold off the biggest stake of all the hedgies tracked by Insider Monkey, comprising close to $54.2 million in stock, and Barry Rosenstein's JANA Partners was right behind this move, as the fund dropped about $36.1 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q3.

Let's go over hedge fund activity in other stocks similar to The Hain Celestial Group, Inc. (NASDAQ:HAIN). We will take a look at Signet Jewelers Limited (NYSE:SIG), Bloomin' Brands Inc (NASDAQ:BLMN), Sanmina Corporation (NASDAQ:SANM), and NetGear, Inc. (NASDAQ:NTGR). This group of stocks' market values are closest to HAIN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SIG,21,200232,-5 BLMN,22,268702,-4 SANM,15,158693,2 NTGR,14,56299,-2 Average,18,170982,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $171 million. That figure was $283 million in HAIN's case. Bloomin' Brands Inc (NASDAQ:BLMN) is the most popular stock in this table. On the other hand NetGear, Inc. (NASDAQ:NTGR) is the least popular one with only 14 bullish hedge fund positions. The Hain Celestial Group, Inc. (NASDAQ:HAIN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on HAIN as the stock returned 39.1% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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